Monday, November 24, 2008

UK air passenger duty (APD), the tax on passengers who fly from UK or stopover in UK, is to increase significantly from 1 November 2009 with a further large increase in 2010.

The current APD is £10/20 for intra-Europe and £40/80 for inter-continental. The first figure refers to the lowest cabin on the aircraft and the latter figure for all other classes of travel.

The rate of APD from 1 November 2009 will be distance based, and depend on the distance between London and the capital city of each country (except Russia east of the Urals has a different calculation). The new rates will vary from £11/22 for shorthaul up to £55/110 for long haul.

Other than a couple of destinations in northern Africa, every APD will go up to a varying extent, with the biggest increases (whether measured by £ or %) for longhaul. APD for business class only airlines will change from the lower rate to the higher rate.

In 2010 the APD goes up by more, with rates varying from £12/24 for shorthaul up to £85/170 for longhaul. Ouch.

The new tax has a longer lead in time than in the past. The last change in APD gave only 2 months notice and caused significant problems for airlines. This time we get over 11 months notice. Airlines should make the changes to their systems fairly quickly so as not to be out of pocket and minimise the disruption at check-in. Those who book now, until the system changes are made, for travel after 1 November may be hit up at check in to pay the tax shortfall.

As with the current system, the calculation is based on ultimate destination not necessarily the destination of the first flight. So you can't reduce the taxes by flying from UK to far-flung destinations via Paris, Frankfurt or Amsterdam - unless you break the travel into 2 or more tickets.

With the airline and tourism industries in crisis mode, and a major downturn in financial services (business travel is a very significant source of revenue for airlines flying from or to UK due to the size of the London financial centre), it seems an odd time to be socking the travelling public.

On pages 18-21 of the main pre-budget report press release, further taxes for travellers are signalled with the intention for aviation to be included in EU emissions trading scheme from 2012.